What Goes Up…

Sure, we’ve gotten a little spoiled this year. Home sales for the region were up 22% in May, topped off by correction, as they say, with sales dropping 25% from June (1,360 / 1,022) and even falling 4% under last July (1,067). Given last month’s drop in pending home sales and our historical trends showing slowing sales through year-end, this decline should not have been a surprise. However, the magnitude of the decline was unanticipated. Last months’ pending sales indicated a reduction closer to last year’s June-July drop of 10%, not 25%. With pending sales off another 4% in July, August sales are not likely to win any prizes. So now we just hang on through year-end to see how much our constrained inventory impacts the market.

July’s median price for the region also dropped 1% from June ($355,155 / $352,219) but maintained a 5% edge over last July ($333,250). The median price for Riverside County in June was $385,000 while the median price across the country rose to $199,200. Both Temecula and Murrieta posted their 3rd consecutive month with home sales about 200 units and Temecula also had their 3rd consecutive month with an average price above $500,000.

For a more detailed explanation, I’ve included a new chart this month showing the difference between median and average prices, and summarizing what an ‘average’ house looks like in each market. The region also showed improvement in another key area – inventory. While there were not a significant number of homes newly listed for sale last month, the drop in sales allowed us to increase the number of homes available for sale by 2% (1,743/1,777), though still 27% below last year’s 2,435 units. We’ve now got an average of 2 months inventory on hand, which is a 30% increase over June’s 1.4 months.

Homes are staying on the market just 17 days at median instead of 59 days a year ago as Buyers deal with the reality of a hyper-competitive marketplace. If you have to go home and think it over, you’ve lost the house. If you think your lowball bid will win the day, you’ve lost the house. And if you lose this house, the next one will cost even more – and that’s assuming interest rates don’t start rising.

This lack of availability coupled with decreasing affordability has caused homeownership in the region to slip again. In 2008, at the peak of the last housing boom when the government was telling us everybody should be a homeowner, nearly 70% of people in the IE were homeowners. By 2014 that percentage had dropped to just 53% when it started climbing again reaching as high as 64% last year.

Unfortunately, in Q1’17 that declined to 61% and in Q2 to just over 58%. That’s still 5% better than California as a whole reflecting that in spite of our own appreciating prices, we’re still more affordable than coastal regions. Nationally the homeownership rate stands at just over 63%, roughly the same rate it’s been for the past three years. Constrained inventory and lack of new product, as well as continued restrictive lending standards are being blamed for keeping the housing market from driving an even stronger economic recovery, as it has in the past.

Of course, by keeping a lid on things, we avoid mention of that other inevitability – the BUBBLE. But it’s California – we know it’s coming, we just don’t know when.

Gene Wunderlich is the Government Affairs Director for Southwest Riverside County Association of Realtors. If you have questions on the market please contact me at GAD@srcar.org or to keep up with the latest legislative and real estate trends go to http://gadblog.srcar.org/.